Value of a Landlord’s Reputation

Many people demonize landlords as evil and greedy bloodsuckers. Some of them are to be sure. Most of them (us) are really just investors trying to make a living and build wealth. Finding a story about a slumlord that does nothing but collect rent is easy. They do as little as possible in terms of maintenance and repair and are simply looking for their monthly check. Ever here the story about the great property owner that treated his tenants fairly, made sure his rentals were properly maintained, safe and secure? I didn’t think so.

You only hear about the terrible landlords because bad news travels fast and good news isn’t very entertaining. It’s like sports referees or umpires; they go unnoticed until they blow a call. The value of having a good reputation as a landlord can be summed up in one word – vacancies.

A Fact of Life

Hear the one about the long-time landlord that never had a vacancy? Neither did I. Vacancies are a fact of life; tenants get new jobs, get married or divorced, have kids and need a bigger house, or buy a house of their own. When a tenant moves out it is rare to have a new one move in the next day. The property may need some repairs or updates, new occupants need to be found, and screening prospective renters takes time. If you can have it rented by the following month you are doing well.

A wise landlord uses a vacancy factor when calculating cash flow projections, generally 7-10%. Sometimes that’s sufficient, sometimes it’s not. Two years ago I wrote an article about two rental properties I owned that were polar opposites in terms of vacancies (article). While a vacancy factor is an assumption, it can vary wildly. I just experienced such a situation.

I own homes in a rural Nevada mining town with a very high demand for rentals. While I’ve certainly had vacancies, I recently went almost two years without one. Then I had one tenant of more than five years give notice because he had finally been able to purchase a house of his own. I was disappointed to lose an excellent tenant but I really couldn’t complain. Not two days later I had a call from another good tenant; she had to move out due to a family emergency. I suddenly had two vacancies – the law of averages had reared its ugly head.

A Priceless Commodity

Imagine a slumlord in that situation. His reputation will keep the good tenants away and he is left with the dregs that can’t get anyone else to rent from him. Fortunately I’m not in that situation – it’s just the opposite.

I immediately put the word out to my network that I had two rentals available. One was ready to go as soon as I changed the locks, the other needs to have a few things taken care of and it was time for new carpet. Within forty-eight hours I had received numerous calls on both properties. In the first case my long-term tenant actually found not one, but two prospective tenants for me. The one I selected is so anxious to move in that my total downtime on the rental will be ten days. The second house is actually paid through the end of September and I am in the process of selecting a tenant for an October 1st move-in.

Why did I have so many people calling me? It’s not because there are no other rentals or because they’re priced too low. The rents are right at market and there are enough properties available that people have a choice. The reason is that this is a small town and I have developed a reputation as a landlord who is fair, but firm, maintains the houses and treats tenants with respect. Want to have a low vacancy rate in your properties? Then develop a stellar reputation in your community.

It takes many good deeds to build a good reputation, and only one bad one to lose it. – Benjamin Franklin

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Your reputation is your greatest asset no matter where you are. Bad news travels fast, so a bad reputation can hurt you.

Even in a big city you will move inn ceratin circles and develop a reputation there. I live in a city of 2 million people. Within that city I have built a network of people who trust me and that I trust in return, boh in and out of the real estate community. I build my relationships the same way everywhere.

Well, this is the first time I honestly heard someone say a link between landlords and referees. But I do agree about the similarity between them. On how a referee only gets noticed after he blows his whistle to make a call. That part is rather unfair but I guess it is just the reality of things.

Also, this is the first time I have read about landlords and crunching numbers for his future, like anticipated vacancies and the like. Thanks for this post. I enjoyed reading through it.